SFR - A Policy for Liberal Democrats?

Systemic Fiscal Reform

Liberal Themes of Systemic Fiscal Reform

Systemic Fiscal Reform's radical programme of taxation, welfare and subsidy changes draws from a number of themes and political traditions.

The focus on free trade has always been high on the list of priorities for social liberals, and Systemic Fiscal Reform aims to extend the free trade concept to the national level. While free trade has proven its worth at the international level, it is often criticised when there is a major power imbalance between the trading partners. That's why the measures in Systemic Fiscal Reform must be balanced by measures to ensure both fairness and real freedom in society.

Land reform through the tax system has been a key recurring theme of Liberal thought since the times of Lloyd George and Winston Churchill at the start of the 20th Century. Basing their ideas on the of the 19th Century American, Henry George, their reform programme was cut short by the First World War, and the momentum of the time was lost. Since the latter half of the 20th Century, the focus of governments switched to trying to make income taxes work against a background of rising demands on the state. As the system grew to include Capital Gains Tax, Value Added Tax and Tax Credits, the Liberal's ambitious ideas of land reform faded. In their place, the Left and Right became embroiled in political squabbling over an expanding array of exemptions and adjustments in a constant game of favouritism and fixes. It should be now be clear to any outside observer that land's tax exemption and array of government subsidies helps nobody but the landed few. Meanwhile, the Transaction Taxes loved by the Left and Right are crumbling under their own weight.

The idea a Carbon Tax is drawn from the works of Pigou and Ramsay (1927).

Perhaps the newest idea is that of Universal Welfare or Citizen's Income. Advocated by Phillippe van Parijs, the Belgian political economist, now a Harvard Professor, the idea dates back to 1968. Adopted at one time by the Liberal Democrats, the Citizen's Income also has strong support from the Green movement. Universal Welfare is founded on the same philosophical principle that brought the National Health Service and the Welfare State, based on groundbreaking Liberal policies from a century ago.

Systemic Fiscal Reform and the Liberal Democrats

The Liberal Democrats seem to have lost their roots in the liberal tradition. The party has almost completely forgotten the Land Issue, while apparently accepting without question the use of Transaction Taxes as the primary source of government revenue. A once radical and distinctive liberal agenda has given way to playing the game of minor adjustments like “a penny on Income Tax for education”, or adding a local component to Income Tax in a constant battle to win votes. Even the current flagship policy to abolish the Council Tax seems to conflict with the historic priority of land taxation. Leadership on the key issue of tax is essential to win a General Election.

Whilst the party has flirted with the Citizen's Income in the past, it is no longer policy. Apparently this is because it is deemed unaffordable when funded through the current tax system. This says more about the inefficiency and problems with the current tax system than the merits of a Citizen's Income. The policy itself was very popular with campaigners, even attracting new members to the party, and meeting with genuine enthusiasm when explained to voters. The public can see a new approach to welfare is long overdue.

The Party is right therefore, to reject a Citizen's Income without radical tax reform. Simply adjusting Income Tax on workers and raising their top rate makes an expensive and damaging system even worse. Combining the Land Value Tax and Citizen's Income ideas however is both practicable and philosophically sound. The combination allows full integration of the tax and welfare system with the minimal of burden and intrusion. The Land Value Tax collects the scarcity “rent” created from the value of local amenities and effective government. Normally this “rent” is collected by the landowner or householder as a tax exempt windfall income and reflected in soaring house prices. Is it not right that the overall success of a community is shared by all?

The introduction of a Carbon Tax is the only way to ensure a predictable, rising carbon price. The failure of the EU Emissions Trading Scheme to set predictable future prices cannot be fixed, and the business uncertainty is proving very costly even at this early stage. Would a new coal power station at Kingsnorth be built at €100/tonne(CO2) price? Almost certainly not! The EU ETS forces the operator to take a billion pound gamble on behalf of the British people and the global environment. Not only does a hefty Carbon Tax overcome this game of Energy Roulette, it can eliminate a whole battery of inefficient and despised taxes, including Europe's baroque system of Value Added Tax. Liberal Democrats and the ELDR should join with The Greens at the forefront of this campaign. Previous attempts at an EU Carbon Tax met with almost unanimous support by the members, with John Major's Government opposition being the insurmountable barrier that led to the compromise that is the ETS. Now that the failures of the ETS can be seen, re-examining the Carbon Tax is urgent.

Taxation and welfare policies are top in voters' minds at general elections. The Liberal Democrats have broken their liberal tradition and now offer an indistinct “me too” programme that will rightly be ignored by voters and the media alike. The Leadership must urgently convene to begin the move to a radical new policy framework.

Liberal Democrats must say:

  • Yes to the universal Citizen's Income!

  • Yes to replace Income Tax with a Land Value Tax!

  • Yes to replace VAT with a uniform Carbon Tax!

  • Yes to abolish the HMRC!

  • No to ballooning tax bureaucracy!



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